Securities and Exchange Commission v. Nadel et al

Filing 1253

Unopposed MOTION for miscellaneous relief, specifically to approve Sixth Interim Distribution by Burton W. Wiand. (Attachments: # 1 Exhibit Distribution Schedule, # 2 Exhibit Reserves, # 3 Exhibit Proposed Order)(Morello, Gianluca)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.

Case No. 8:09-cv-87-T-26TBM

ARTHUR NADEL;
SCOOP CAPITAL, LLC;
SCOOP MANAGEMENT, INC.
Defendants,
SCOOP REAL ESTATE, L.P.;
VALHALLA INVESTMENT PARTNERS, L.P.;
VALHALLA MANAGEMENT, INC.;
VICTORY IRA FUND, LTD.;
VICTORY FUND, LTD.;
VIKING IRA FUND, LLC;
VIKING FUND, LLC; AND
VIKING MANAGEMENT, LLC,
Relief Defendants.
____________________________________/
RECEIVER’S UNOPPOSED MOTION TO (1) APPROVE SIXTH
INTERIM DISTRIBUTION AND (2) INCREASE CERTAIN RESERVES
Burton W. Wiand, as Receiver (the “Receiver”), respectfully moves this Court for an
Order: (1) approving a sixth interim distribution of $2,000,000.00 as set forth in this motion
and in Exhibit A, representing an additional recovery of 1.52% of the Allowed Amounts1 of
1

The phrase “Allowed Amount” is defined in the Receiver’s Motion to (1) Approve
Determination and Priority of Claims, (2) Pool Receivership Assets and Liabilities, (3)
Approve Plan of Distribution, and (4) Establish Objection Procedure (the “Claims
Determination Motion”) (Doc. 675 at 8 n.8).

Class 1 Claims2 receiving a distribution at this time3 and (2) increasing reserves by
$111,963.37, which will leave in place a total reserve amount of $2,769,187.73 for Wells
Fargo Bank, N.A.’s and TRSTE, Inc.’s purported interests in Receivership assets and the
Receivership estate as set forth in Exhibit B. A proposed order is provided as Exhibit C.
BACKGROUND
The Receiver has sought and received the Court’s approval of five prior interim
distributions. (Motions, Docs. 825, 945, 1085, 1113, 1212; Orders, Docs. 839, 946, 1087,
1114, 1213).

Through these distributions the Receiver has distributed a total of

approximately $60 million on a pro rata basis to Claimants with Allowed Claims who were
entitled to receive distributions at that time, representing a total recovery of approximately
46.65% of the Allowed Amounts for those claims.4 In these prior interim distributions, the
Receiver also sought the Court’s approval of the establishment of reserves for claims for
which timely objections were received and for Wells Fargo’s and TRSTE, Inc.’s purported
2

Class 1 is comprised of (i) claims made by investors which were allowed or allowed
in part and (ii) claims asserted by taxing authorities which were allowed. (See Doc. 675 at
34-38.)
3

As discussed in more detail below and in Exhibit A, $30,462.51 of this $2,000,000.00
will not be distributed and instead will revert to the Receivership. (See Claim No. 391.)
4

As discussed in detail in each of the motions for interim distribution and on the
exhibits attached to each motion, certain claims were not entitled to participate in the
distribution and the distribution amounts apportioned to those claims reverted to the
Receivership. For example, Claim Number 391 is not entitled to participate in any
distributions of Receivership assets until and if all Class 1 Claims receive 50% of their
Allowed Amounts. Because the interim distributions have provided a combined recovery of
46.65% to such Class 1 Claims, this claim was not entitled to participate in the interim
distributions. Accordingly, the amounts apportioned to Claim Number 391 were not
distributed and reverted to the Receivership.

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interests in Receivership assets and the Receivership estate. With the Court’s approval, the
Receiver increased reserves as needed for each interim distribution and released reserves as
appropriate when objections were resolved. All interim distribution checks have been mailed
to Claimants holding claims which were determined to be entitled to participate in the interim
distributions and all checks but two have been negotiated. Two checks from the Fifth Interim
Distribution were not negotiated. These distribution checks were sent to the Claimants with
Claim Numbers 56 and 352 in the amounts of $1,565.45 and $146.34, respectively. As set
forth in Exhibit A, the Receiver requests that the Court allow him to rollover these amounts
to this interim distribution to allow these Claimants an additional opportunity to recover
these funds.
PROPOSED PLAN FOR SIXTH INTERIM DISTRIBUTION
The Receiver now seeks leave to make a sixth interim distribution totaling
$2,000,000.00 as specified in Exhibit A to holders of Class 1 Claims on a pro rata basis
subject to applicable exceptions, priorities, and other parameters discussed in the Claims
Determination Motion – the same method and parameters used for all of the prior interim
distributions.

This distribution will result in an additional 1.52% recovery for these

Claimants’ Allowed Amounts, bringing these Claimants’ total recovery to approximately
48.18% of their Allowed Amounts.5

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Again, because Claim Number 391 is not allowed to participate in any distributions of
Receivership assets until and if all Class 1 Claims receive 50% of their Allowed Amounts
and the proposed sixth interim distribution will bring the total combined recovery to 48.18%
for such Class 1 Claims, this claim is not entitled to participate in the sixth interim
distribution.

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The distribution plan approved by the Court provides that Class 1 Claimants receive a
percentage of their Allowed Amount from the aggregate amount distributed to Claimants in
any particular distribution based upon the following formula, which achieves a pro rata
distribution: each claim’s Allowed Amount divided by the total Allowed Amount of all
allowed claims multiplied by the aggregate distribution amount. The amount each Class 1
Claim would receive based on this formula as part of a sixth interim distribution is specified
in Exhibit A.
As of December 5, 2016, the total funds in all Receivership accounts are
approximately $9,962,964.22, which includes $2,657,224.36 currently being held in reserves
for objections and $4,377,456.84 being held separately until a claim to these funds is
resolved. The Receiver believes that by distributing $2,000,000.00 he will be able to provide
a significant amount of money to Claimants now while still maintaining adequate funds,
including to cover the expenses of (1) continuing ongoing litigation and post-judgment
collection efforts, (2) administering the Receivership, and (3) paying the Receiver’s
professionals for services already provided and yet to be provided. Further, as discussed
below, the Receiver will be left with sufficient funds and assets to cover asserted interests in
the Receivership by Wells Fargo. The Receiver believes he has reserved more than is
necessary for the payment of these items and intends to distribute the excess in one or more
future distributions as appropriate.
The Receiver requests leave to make the sixth interim distribution in the amounts
specified on Exhibit A within 15 business days of the date of the order authorizing the
distribution. The Receiver will mail checks by U.S. Mail. The Receiver requests that the

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Claimants be allowed 120 days to negotiate the distribution checks. If a check is not
negotiated by a Claimant within 120 days, the money will revert to the Receivership and
likely will be distributed on a pro rata basis in a future distribution.

A deadline for

negotiating distribution checks is necessary for the orderly administration of the Receivership
and to avoid future expenses for tracing unnegotiated checks and having the bank place “stop
payments” on any such checks.
OBJECTIONS AND RESERVES
The Receiver received objections relating to 23 claims (see Claim Nos. 157, 403, 404,
405, 406, 407, 408, 444, 445, 449, 450, 462, 463, 464, 465, 466, 467, 469, 471, 476, 477,
483, and 504). These objections were raised by twelve Claimants, four of whom have
multiple claims. Further, Wells Fargo, which filed Claim Number 502, petitioned the Court
for relief with respect to its claim and to other interests it has asserted in Receivership
property.
All objections relating to the 23 claims identified above have been resolved. Five of
the objections were withdrawn after communications with the Receiver’s counsel (see Claim
Nos. 157, 449, 450, 476, and 483); one was resolved in connection with the settlement of
ancillary litigation (see Claim No. 444); and one was resolved in connection with the First
Distribution Motion (see Claim No. 471). Sixteen objections were overruled by the Court
(see Claim Nos. 403, 404, 405, 406, 407, 408, 445, 462, 463, 464, 465, 466, 467, 469, 477,
and 504; Docs. 928, 1061, 1121, 1194, 1198). Thus, no reserves are needed for these claims.
With respect to Wells Fargo’s purported interests in Receivership assets and the
Receivership estate, the Receiver seeks leave to increase the pertinent reserves until those

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issues are resolved. The Receiver seeks an increase in the specified reserves so that these
purported interests do not impede or delay a sixth interim distribution. More specifically, as
set forth in Exhibit B, the Receiver seeks leave to increase reserve funds in connection with
Claim Number 502, which was submitted by Wells Fargo, and other purported interests it has
asserted in Receivership assets.6 (See Docs. 689, 690, 718, 719, 740.) The Receiver seeks
leave to increase those reserves by a total of $111,963.37 as set forth and itemized in Exhibit
B. Assuming the Court increases reserves relating to Wells Fargo as requested, total reserves
will be $2,769,187.73. Reserves will be held until the corresponding asserted interest is
resolved.
ARGUMENT
As explained above, the Receiver asks the Court to approve the sixth interim
distribution as set forth in this motion and in Exhibit A. The Court has previously approved
the Receiver’s plan of distribution and five interim distributions. (See March 2, 2012 Order,
Doc. 776; May 7, 2012 Order, Doc. 839; November 16, 2012 Order, Doc. 946; November
22, 2013 Order, Doc. 1087; April 24, 2014 Order, Doc. 1114; December 15, 2015 Order,

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With respect to Wells Fargo’s claim and asserted interests, the Receiver has
previously asserted that, assuming arguendo Wells Fargo is entitled to any recovery, (1) such
recovery could only come from proceeds of the sale of collateral; (2) Wells Fargo would not
be able to recover any deficiency from the Receivership estate; and (3) even assuming
arguendo Wells Fargo could recover a deficiency from the Receivership estate, any such
deficiency claim would be a Non-Investor Unsecured Claim and thus would receive lower
priority than Class 1 claims (Class 1 claims are the ones which will receive this proposed
interim distribution). As such, any deficiency claim would not be paid until all Investor
Claims’ Allowed Amounts have been fully satisfied. Nevertheless, and out of an abundance
of caution, the Receiver proposes maintaining and increasing certain reserves for Wells
Fargo’s claim and asserted interests as detailed in Exhibit B.

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Doc. 1213.) The sixth interim distribution sought herein is consistent with the plan of
distribution approved by the Court and the prior interim distributions. Further, the relief
requested in this motion is in the best interest of the Receivership and the Claimants as a
whole; is fair, reasonable, and equitable; and satisfies due process.
The Court’s power over an equity receivership and to determine appropriate
procedures for administering a receivership is “extremely broad.” SEC v. Hardy, 803 F.2d
1034, 1037 (9th Cir. 1986); see SEC v. Basic Energy, 273 F.3d 657, 668 (6th Cir. 2001); SEC
v. Elliot, 953 F.2d 1560, 1566 (11th Cir. 1992).

The primary purpose of an equity

receivership is to promote the orderly and efficient administration of the estate for the benefit
of the creditors. Hardy, 803 F.2d at 1038. The relief requested by the Receiver best serves
this purpose.
The Court has wide latitude when it exercises its inherent equitable power in
approving a plan of distribution of receivership funds. SEC v. Forex Asset Mgmt. LLC, 242
F.3d 325, 331 (5th Cir. 2001) (affirming District Court’s approval of plan of distribution
because court used its discretion in “a logical way to divide the money”); Quilling v. Trade
Partners, Inc., 2007 WL 107669, *1 (W.D. Mich. 2007) (“In ruling on a plan of distribution,
the standard is simply that the district court must use its discretion in a logical way to divide
the money” (internal quotations omitted)).

In approving a plan of distribution in a

receivership, “the district court, acting as a court of equity, is afforded the discretion to
determine the most equitable remedy.” Forex, 242 F.3d at 332. The Court may adopt any
plan of distribution that is fair and reasonable. SEC v. Wang, 944 F.2d 80, 83-84 (2d Cir.
1991); Basic Energy, 273 F.3d at 671.

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Consistent with the features of Nadel’s Ponzi scheme, “Courts have favored pro rata
distribution of assets where, as here, the funds of defrauded victims were commingled and
where victims were similarly situated with respect to their relationship to the defrauders.”
SEC v. Credit Bancorp, Ltd., 290 F.3d 80, 88 (2d Cir. 2002); see Quilling, 2007 WL 107669
at *2 (“The use of a pro rata distribution plan is especially appropriate for fraud victims of a
Ponzi scheme, in which earlier investors’ returns are generated by the influx of fresh capital
from unwitting newcomers rather than through legitimate investment activity.”). A fair and
reasonable distribution plan may provide for reimbursement to certain claimants, while
excluding others. See Wang, 944 F.2d at 84 (citations omitted); Basic Energy, 273 F.3d at
660-61. The Receiver believes that the interim distribution set forth above is fair and
reasonable and is consistent with the distribution plan approved by the Court.
WHEREFORE, Burton W. Wiand, as Receiver, respectfully requests the Court enter
an order: (1) authorizing a sixth interim distribution in the total amount of $2,000,000.00 as
set forth above and in Exhibit A7 and (2) increasing reserves by $111,963.37. The total
reserve amount will then be $2,769,187.73 for Wells Fargo Bank, N.A.’s and TRSTE, Inc.’s
purported interests in Receivership assets and the Receivership estate as set forth in Exhibit
B.

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As specified in Exhibit A, the Receiver has honored technical requests related to the
distribution of funds. For instance, as authorized by the Court, the Receiver has honored
requests for the reissuance of distribution checks made payable to custodians which were no
longer being used by the Claimant (see Claim Nos. 23, 132, 246, 247, 303, and 304) and also
for a claimant whose pension funds were rolled over to an IRA (see Claim No. 64). These
custodian changes are noted on Exhibit A.

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LOCAL RULE 3.01(g) CERTIFICATION
The undersigned counsel for the Receiver has conferred with counsel for the
Securities and Exchange Commission and is authorized to represent to the Court that the
Commission has no objection to the relief sought herein.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on December 20, 2016, I electronically filed the
foregoing with the Clerk of the Court by using the CM/ECF system.
s/Gianluca Morello
Gianluca Morello, FBN 034997
[e-mail]
Michael S. Lamont, FBN 0527122
[e-mail]
Maya M. Lockwood, FBN 0175481
[e-mail]
WIAND GUERRA KING P.A.
5505 West Gray Street
Tampa, Florida 33609
Tel.: [phone]
Fax: [phone]
Attorneys for Burton W. Wiand, Receiver

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